SADDLEBROOK RESORTS INC - Quarter Report: 2005 June (Form 10-Q)

(Address of principal executive offices)

813-973-1111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  þ           NO  o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b- 2 of the Act).

YES  o           NO  þ

Registrant has 100,000 shares of common stock outstanding, all of which are held by an affiliate of the Registrant.

 

 

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at June 30, 2005 and December 31, 2004			3
Statements of Operations for the three months and six months ended June 30, 2005 and 2004			4
Statements of Cash Flows for the six months ended June 30, 2005 and 2004			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at June 30, 2005 and December 31, 2004			9
Statements of Operations for the three months and six months ended June 30, 2005 and 2004			10
Statements of Changes in Participants’ Fund Balance for the six months ended June 30, 2005 and 2004			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Quantitative and Qualitative Disclosures about Market Risk			14
Item 4. Controls and Procedures			14
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3. Defaults upon Senior Securities			15
Item 4. Submission of Matters to a Vote of Security Holders			15
Item 5. Other Information			15
Item 6. Exhibits			15
Signature			15
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

		June 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Current assets:
Cash and cash equivalents		$	1,996,794			$	723,131
Escrowed cash			1,254,566				3,250,362
Short-term investments			375,000				375,000
Accounts receivable, net			2,613,725				2,300,423
Due from related parties			2,856,990				988,012
Inventory and supplies			1,329,223				1,514,533
Prepaid expenses and other assets			1,001,254				711,049
Total current assets			11,427,552				9,862,510
Long-termed escrowed investments			—				399,576
Property, buildings and equipment, net			23,404,633				23,234,943
Deferred charges, net			72,792				80,946
Total assets		$	34,904,977			$	33,577,975
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of note payable		$	800,004			$	800,004
Current portion of capital leases			173,902				29,260
Escrowed deposits			1,254,566				3,649,938
Accounts payable			618,120				805,021
Accrued rental distribution			1,189,267				810,169
Accrued expenses and other liabilities			2,909,118				2,774,888
Guest deposits			940,970				1,466,485
Due to related parties			57,149				—
Total current liabilities			7,943,096				10,335,765
Note payable due after one year			10,666,660				11,066,662
Capital lease obligations due after one year			381,547				40,175
Total liabilities			18,991,303				21,442,602
Shareholder’s equity:
Common stock, $1.00 par value, 100,000 shares authorized and outstanding			100,000				100,000
Additional paid-in capital			1,013,127				1,013,127
Accumulated earnings			14,800,547				11,022,246
Total shareholder’s equity			15,913,674				12,135,373
		$	34,904,977			$	33,577,975

The accompanying Notes to Financial Statements are an integral part of these financial statements.

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Revenues		$	11,096,730			$	9,385,541			$	26,071,933			$	25,031,693
Costs and expenses:
Operating costs			8,153,788				7,424,776				17,728,101				16,855,808
Sales and marketing			655,141				691,354				1,381,521				1,453,361
General and administrative			936,338				968,365				1,970,793				1,934,364
Depreciation			460,289				442,726				908,613				890,437
Total costs and expenses			10,205,556				9,527,221				21,989,028				21,133,970
Net operating income before
Other expenses and (income)			891,174				(141,680	)			4,082,905				3,897,723
Other expenses & (income)
Interest expense			153,221				371,606				296,450				749,561
Amortization of debt financing costs			4,077				9,945				8,154				19,890
Litigation settlement (net)							108,219								(3,177,832	)
Net income (loss)			733,876				(631,449	)			3,778,301				6,306,104
Accumulated earnings at beginning of period			14,066,671				14,801,306				11,022,246				7,863,753
Accumulated earnings at end of period		$	14,800,547			$	14,169,857			$	14,800,547			$	14,169,857

The accompanying Notes to Financial Statements are an integral part of these financial statements.

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

		Six months ended
		June 30,
		2005				2004
Operating activities:
Net income		$	3,778,301			$	6,306,104
Non-cash items included in net income:
Provision for doubtful accounts			6,720				6,720
Depreciation			908,613				910,327
Amortization of debt financing costs			8,154				19,890
Loss (gain) on sale of assets			16,987				463
Decrease (increase) in:
Accounts receivable			(320,022	)			(592,206	)
Inventory and supplies			185,310				18,613
Prepaid expenses and other assets			(290,204	)			257,757
Increase (decrease) in:
Accounts payable			(186,902	)			(17,890	)
Accrued rental distribution			379,098				237,754
Guest deposits			(525,515	)			(137,502	)
Accrued expenses and other liabilities			134,230				306,180
			4,094,770				7,316,210
Investing activities:
Proceeds from sale of asset			100				400
Short term investments			—				(75,000	)
Capital expenditures			(535,798	)			(490,201	)
			(535,698	)			(564,801	)
Financing activities:
Payments on notes payable			(400,002	)			(728,516	)
Payments on capital lease obligations			(73,578	)
Net payments from (to) related parties			(1,811,829	)			63,315
			(2,285,409	)			(665,201	)
Net increase in cash			1,273,663				6,086,208
Cash at beginning of period			723,131				5,198,715
Cash at end of period		$	1,996,794			$	11,284,923
Supplemental disclosure of cash flow information:
Cash paid for interest			296,450				749,561
Supplemental disclosure of non-cash items:
Debt assumed for capital lease			559,592				—

The accompanying Notes to Financial Statements are an integral part of these financial statements.

SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

Saddlebrook Resorts, Inc. (the “Company”) developed and operates Saddlebrook Resort, which is a condominium hotel and resort located in Wesley Chapel, Florida.

The Company’s accompanying balance sheet for June 30, 2005, and its statements of operations and cash flows for the periods ended June 30, 2005 and 2004, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

The Company’s business is seasonal. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

These financial statements and related notes are presented for interim periods in accordance with the requirements of Form 10-Q and, consequently, do not include all disclosures normally provided in the Company’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Note 2. Accounts Receivable

		June 30,
		2005				December 31,
		(Unaudited)				2004
Trade accounts receivable		$	2,652,424			$	2,332,402
Less reserve for bad debts			(38,699	)			(31,979	)
		$	2,613,725			$	2,300,423

Note 3. Property, Buildings and Equipment

		June 30,
		2005				December 31,
		(Unaudited)				2004
Land and land improvements		$	4,859,372			$	4,859,372
Buildings and recreational facilities			26,378,736				25,554,112
Machinery and equipment			14,642,423				14,404,035
Construction in progress			112,630				677,701
			45,993,161				45,495,220
Less accumulated depreciation			(22,588,528	)			(22,260,277	)
		$	23,404,633			$	23,234,943

The Company’s property, buildings and equipment are pledged as security for its debt (see Note 5).

Note 4. Deferred Charges

		June 30,
		2005				December 31,
		(Unaudited)				2004
Debt issue costs		$	83,730			$	83,730
Less accumulated amortization			(10,938	)			(2,784	)
		$	72,792			$	80,946

Note 5. Note Payable

On November 1, 2004, the Company refinanced $12 million of the previous note payable due on June 30, 2013 with a new term note with a new lender. As part of the refinancing, the Company paid the remaining principal balance due under the prior note. The new term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index. At June 30, 2005, the outstanding balance of the note payable was $11,466,664.

The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the terms of the agreement subject to specific covenants until November 1, 2006.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at June 30, 2005 and December 31, 2004 are the result of net intercompany transactions and cash transfers between the Company and its shareholder company and affiliated companies. There are no advances from the Company to its Directors or Officers.

Note 7. Income Taxes

The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company.

Note 8. Litigation Settlement

During January 2004, the Company and Honeywell Corporation (the owner of the Company’s former parent company), settled a legal dispute with a prior insurance provider. The case involved the Company and its former parent company seeking reimbursement for the defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by the policies issued by the insurance company. A favorable settlement of $4,950,000 was received by the Company in February 2004. Certain related expenses for legal services and bonuses have been netted against this amount resulting in a net litigation settlement of $3,177,832.

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

		June 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Receivable from Saddlebrook Resorts, Inc.		$	1,277,660			$	919,360
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	1,064,430			$	751,408
Due to maintenance escrow fund			213,230				167,952
Participants’ fund balance			—				—
		$	1,277,660			$	919,360

MAINTENANCE ESCROW FUND

		June 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Cash and cash equivalents		$	1,223,473			$	3,223,612
Investments			—				399,576
Receivables:
Distribution fund			213,230				167,952
Owner payments			—				—
Interest			12				672
Linen inventory			37,415				97,419
Prepaid expenses and other assets			79,655				25,018
		$	1,553,785			$	3,914,249
Liabilities and Participants’ Fund Balance
Accounts payable		$	189,133			$	178,800
Participants’ fund balance			1,364,652				3,735,449
		$	1,553,785			$	3,914,249

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Rental pool revenues		$	3,150,663			$	2,455,326			$	8,245,214			$	7,614,613
Deductions:
Marketing fee			236,300				184,149				618,391				571,096
Management fee			393,833				306,916				1,030,652				951,827
Travel agent commissions			99,736				97,236				311,637				346,113
Credit card expense			53,893				47,535				133,843				120,002
Provision for bad debts			1,500				1,500				3,000				3,000
			785,262				637,336				2,097,523				1,992,038
Net rental income			2,365,401				1,817,990				6,147,691				5,622,575
Less operator share of net rental income			(1,300,971	)			(818,096	)			(2,766,461	)			(2,530,159	)
Other revenues (expenses):
Complimentary room revenues			20,662				16,413				48,811				32,520
Minor repairs and replacements			(43,973	)			(41,806	)			(75,785	)			(81,577	)
Amount available for distribution		$	1,277,660			$	974,501			$	3,354,256			$	3,043,359

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)

DISTRIBUTION FUND

		Six months ended
		June 30,
		2005				2004
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			3,354,257				3,043,359
Reductions:
Amount withheld for maintenance escrow fund			(587,796	)			(513,200	)
Amount accrued or paid to participants			(2,766,461	)			(2,530,159	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Six months ended
		June 30,
		2005				2004
Balance at beginning of period		$	3,735,449				1,089,720
Additions:
Amount withheld from distribution fund			587,796				513,200
Unit owner payments			1,018,514				6,102,704
Interest earned			10,056				13,123
Reductions:
Escrow account refunds			(22,397	)			(26,853	)
Maintenance charges			(196,796	)			(106,688	)
Unit renovations			(3,563,904	)			—
Linen replacement			(204,066	)			(146,683	)
Balance at end of period		$	1,364,652			$	7,438,523

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company operates Saddlebrook Resort (the “Resort”) in Wesley Chapel, Florida, which contains condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainder of the condominium units either participate in a non-pooling rental program, are owner-occupied or are designated as hospitality suites or housing for young athletes independent of the rental programs. Other resort property owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and conference center facilities.

Liquidity and Capital Resources

There were no significant capital additions or improvements during the three months ended June 30, 2005. The Company entered a three year lease of computer equipment at a cost of $130,000 on April 1, 2005. Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by current cash reserves and cash generated by resort operations. The Company’s current debt agreement also contains a commitment for an additional $5,000,000 provided the Company is in compliance with certain financial covenants. The Company’s financing from a third-party lender bears interest at 2% over the one month LIBOR index (5.11% at June 30, 2005) and matures on November 1, 2009.

Regarding the Company’s operation of the Rental Pool, the Company’s management has commenced a project to replace and upgrade unit furniture packages and expects to complete that project by the end of 2005. The total cost of that project is expected to be approximately $8,400,000, $7,128,000 of which has already been spent as of the end of June 2005. The original estimate of $7,700,000 was revised due to increases in the charges for freight and installation.

Results of Operations

Second quarter 2005 compared to second quarter 2004

The Company’s total revenues increased approximately $1,712,000 or about 18%, for the three months ended June 30, 2005 compared to the same period in the prior year. Total revenues for the Rental Pool increased approximately $695,000, or 28%, from the same
period in the prior year. These increases were primarily due to a 26% increase in the number of paid room nights. There was no change in the average daily room rate for the condominium units that participated in the Rental Pool. Paid room nights increased 32% for the Resort’s group business and 15% for social hotel stays. The increase in group paid nights can be partially attributed to the fact that the Easter holiday occurred in the first quarter of 2005 (March 27) as opposed to the second quarter of 2004 (April 11). Corporate bookings are fewer during the Easter break period. The Company’s total resort revenues were also affected by increased sales in its food and beverage and other areas of operations that resulted from a 21% increase in the number of individual guests that stayed at the Resort for the current quarter when compared to the same period in the prior year.

First six months 2005 compared to first six months 2004

The Company’s total revenues increased approximately $1,040,000 or 4% for the first six months of 2005 compared to the same period in the prior year. Total revenues for the Rental Pool increased approximately $631,000, or 8%, from the same period in the prior year. These increases were primarily due to an 8% increase in the number of paid room nights for the condominium units that participated in the Rental Pool during the six — month period. Paid room nights increased 5% for the Resort’s group business and 25% for social hotel stays. The Company’s total resort revenues also reflected increased sales in its food and beverage and most other areas of operations that resulted from a 9% increase in the number of individual guests that stayed at the Resort for the period when compared to the first six months of 2004.

The Company’s net operating income for the current period increased approximately $185,000, which was a 4% increase from the net operating income for the first six months of 2004. This increase was primarily a result of increased revenues.

Seasonality

The Company’s operations are seasonal with the highest volume of revenues generally occurring in the first quarter of each calendar year.

Due to the seasonal business of the Company, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s invested cash, including investments escrowed on behalf of the condominium unit owners in the Rental Pool’s Maintenance Escrow Fund, are subject to changes in market interest rates. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

The Company’s term note bears interest at 2% over the one month LIBOR index and matures on November 1, 2009.

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of June 30, 2005, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2005, in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

There were no significant changes in the Company’s internal controls over financial reporting or in other factors during the quarter ended June 30, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in litigation in the ordinary course of business. In the opinion of the Company’s management, insurance or indemnification from other third parties adequately covers these matters. Accordingly, the effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

     The following exhibits are included in this Form 10-Q:

31.1 — Chief Executive Officer Rule 15d- 14(a) Certification

31.2 — Chief Financial Officer Rule 15d- 14(a) Certification

32.1 — Chief Executive Officer Section 1350 Certification

31.2 — Chief Financial Officer Section 1350 Certification

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		SADDLEBROOK RESORTS, INC.
		(Registrant)
Date: August 15, 2005		/s/ Donald L. Allen
		Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)

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